Small businesses require a great deal of startup capital and sufficient funds to maintain its growth. If the world of business funding has you scratching your head, read these tips for navigating funding for your small business.
Know Your Options
There are a few main avenues to secure that initial funding for your business:
- SBA (Small Business Administration) loans enable you to work with your bank or a traditional lender to secure a standard loan.
- 401(k) financing allows you to use money already in your 401(k) retirement plan and invest it in your new business, tax-deferred and penalty-free.
- Venture capitalists are individuals who like to invest in growing businesses in exchange for a seat on a board of trustees.
- Crowdfunding secures startup capital from many individuals who donate smaller amounts of money to give you a boost.
Choose What Works for You
Depending on the status of your business and your financial circumstances, some options may be more attractive than others.
Self-funding is not a viable option for many business owners. Most people don’t have that kind of cash readily available. However, if you have a 401(k) retirement plan at your current job, you can roll over those funds into a new plan to use as startup funding for your new business—without debt, loan interest, taxes, or penalties and all while still planning for retirement.
Some business owners may hesitate to partner with venture capitalists for funding. However, that partnership can encourage a collaborative spirit with investors who want to see the business succeed.
Maintain Your Funding
Once you have the capital to start or grow your business, you’ll need to follow a strict budget to make good use of those funds. You should already have a business plan in place that demonstrates to lenders and investors that you’ll use the money wisely.
Build a solid accounting department in your business and keep meticulous records, both accounts payable and accounts receivable. If you’ve taken out a small business loan, those repayments should be a crucial part of your budget. Make those payments on time to boost your business’s credit score.
Adequate funding is a crucial element of a successful and growing business. Secure that capital and put it to good use with these tips for navigating small business funding.